Rob Horrar – President and Chief Executive Officer Tyler Murphy – Chief Financial Officer

Endri Leno – National Bank Neil Linsdell – Industrial Alliance Neil Maruoka – Canaccord Genuity

Good morning, everyone. Welcome to the Medical Facilities Corporation 2018 First Quarter Results Conference Call. Before turning the call over to management, listeners are cautioned that today’s presentation and the responses to questions may contain forward-looking statements within the meaning of the Safe Harbor provisions of Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the MD&A for this quarter, the Risk Factors section of the Annual Information Form, and Medical Facilities’ other filings with Canadian securities regulations. Medical Facilities does not undertake to update any forward-looking statements. Such statements speak only as of the date made. Listeners are also reminded that today’s call is being recorded for the benefit of individual shareholders, the media, and other interested parties who may want to review the call at a later time. I would now like to turn the meeting over to Mr. Rob Horrar, President and CEO of Medical Facilities. Please go ahead, Mr. Horrar.

Thank you, James, and good morning, everyone. Joining me today is Tyler Murphy, our Chief Financial Officer; Jim Rolfe, our Chief Development Officer; Prior to market open today, we released our 2018 first quarter financial results. Our news release, financial statements and MD&A may be access through our corporate website at www.medicalfacilitiescorp.ca, and we’re also filed on SEDAR today. For today’s call, I’ll start by discussing the results of the past quarter. Tyler will review the financial results, and I will then provide some comments on our outlook, after which we will open the call to your questions. In the first quarter of 2018, we completed a significant step in executing on our growth strategy when we increased the number of facilities in our portfolio with the acquisition of controlling interest in seven ambulatory surgery centers on February 1 for Meridian Surgical Partners. MFC now has a presence in 11 states from five and its new service centers provide outpatient procedures such as orthopedic surgery, neurosurgery and pain management, adjacent to those of our legacy portfolio. An exciting aspect of this acquisition is that we made in partnership with NueHealth. It will provide management services to the centers without an increase in cost. NueHealth has been in the facility management business for over 20 years and are experts in developing new ambulatory surgery centers and generating additional value and growth from established centers. We expect to create synergies with these new centers and any future ASCs. We may acquire or develop with this new platform. For example, one key synergy is that we receive is the centers will be included in NueHealth corporate procurement program, which leverages there 50 plus facilities under management to achieve cost savings. We see a significant pipeline of opportunities to acquire and develop attractive ASCs through this partnership, which comprise NueHealth management expertise with our skills that identifying, evaluating and acquiring facilities creating a strong platform for growth. Now Tyler will provide more detail and insight into our financial performance for the first quarter of 2018. Tyler?

Thanks, Rob. As on our previous calls, I would like to note that all of the dollar amounts expressed in today’s call are in U.S. dollars, unless otherwise stated. In Q1 2018, MFC had revenue of $97.6 million, 9.7% increase over $89 million in Q1 2017. The majority of increase came from the MFC Nueterra ASCs which generated $6 million of incremental revenue with the remainder of the growth coming from our legacy facilities. Surgical cases increased by 29.1% overall in the quarter. The majority of that growth is from outpatient cases which grew 43.3%. This mainly reflects the additional volume we gain from the new ASC. The majority of the growth came from commercial insurance, private payers and Medicare, which grew 73.5% and 45.8% respectively. EBITDA in Q1 2018 was $20.1 million flat with $20.1 million in Q1 of 2017 and represents the margin of 20.6% compared to 22.6% a year earlier. At Unity, we saw improvement the first quarter of 2018 compared to the same quarter of the previous year, as a result of our success in any physicians to the facility and the new finance team in place there. Revenue at Unity increased by 57.2% from $5.7 million to $9 million and the net loss was reduced by $2.7 million. In addition, the Unity team has a mandate to look at all expenses across the board as well as to execute on a strategic growth plan, which we expect to result in further improvement. Cash available for distribution in Q1 2018 was CAD9.4 million down from CAD10.8 million a year earlier, relating to increased corporate expenses mainly due to acquisition related expenses. On a per share basis, our cash available for distribution was CAD0.305 in Q1 2018 compared to $0.348 per share in Q1 2017. The result in payout ratio was 92.2% for the quarter compared to 80.9% for the previous year. We had cash and cash equivalents and short-term investments of $45.1 million and about $12.2 million available from our credit facility at the end of the quarter, which provide sufficient resources to continue to execute on our growth strategy. For additional detail on specific results for each centre, please refer to our MD&A. Rob will now provide some comments on outlook and then we’ll take your questions. Rob?

Thanks, Tyler. With the first quarter of 2018, we started the year off with an acquisition in line with our strategy to expand our investment in outpatient services. And a partnership that enhances our ability to continue to execute on that strategy. Looking ahead to the rest of 2018, we see many opportunities to add quality facilities to our ambulatory surgery center portfolio and as anticipated, the number of targets that increased in the few months, we’ve been associated with NueHealth. We continue to be prudent and every acquisition opportunity will be assessed with a thorough due diligence process to ensure any new facility we acquire matches the high-quality, strong performance and growth opportunities in the existing portfolio. Organic growth also remains a priority and we will continue to focus on enhancing and adding services at our existing facilities, including the recruitment of new physicians and the addition of ancillary services, such as urgent care clinics. In fact, we open two urgent care clinics in our Arkansas and Sioux Falls market at the beginning of the year and continue to identify new strategic locations in our existing markets. As we grow, we’ll also look for more opportunities to leverage operational efficiencies and assist facility partners to improve efficiencies in value added services like group purchasing and sharing the best practices. For example, in Q1 of this year, we finalized an affiliation agreement with Vanderbilt supply chain services collaborative to improve our pricing under our existing group purchasing organization. We expect this affiliation to continue to add value to our legacy portfolio, as we continue to identify pricing opportunities with supplies and equipment throughout 2018. All of this is based on our long track record of delivering the highest quality of care. Our local leadership teams and physician partners are committed to maintaining high quality and patient satisfaction scores that have placed them among the best in the United States. This will not change and that these facilities will continue to be the first choice, in terms of places where patients want to receive care and physicians wants practice. I would like to acknowledge the sincere commitment of our physician partners, facility leaders and associates, who provide high-quality patient-centered care every day. On behalf of Medical Facilities Corporation’s management team and the Board of Directors, thank you for your ongoing support. With that, we would now like to open the line for questions. Operator?

[Operator Instructions] And your first question comes from the line of Endri Leno from National Bank. Go ahead please. Your line is open.

Hi, good morning, and thanks for taking my question.

Yes. Good morning.

I’ll start off I mean the first question is the Arkansas surgical the decline year-over-year. I was wondering if you can quantify how much of the drop to lower case and how much of it would due to case mix and what did cause the drop in volumes? Is it permanent or should we expect an increase beyond finality in the over the course of the year?

Yes. For the most part, we saw in Arkansas, we had some physician more – a little bit more physician absences than we’ve typically seen particularly year-over-year was vacations and one case an illness, which was impact over the first quarter. And then just in terms of that was probably most other than some of it with case mix typically in our business we see a very large demand for commercial services in the fourth quarter, which is not the same compressions, if you see in the Medicare business, so we see – typically see an uptick that was certainly the case. And then just to know that that was also one of the markets that we opened an urgent care center in the first quarter and that’s starting to ramp up as we would expect as well so.

Okay. Thank you. And next one up for Oklahoma is fine. I mean it’s this third quarter of why every year decreasing operating income. I mean how do you see this evolving? Would it be like a permanent shift to this level of operating income? Or do we expect that pickup in coming quarters?

Yes. I think as we said I think on previous calls, we had a pain doctor this left. I think he leave in the second quarter of last year. We are actively recruiting some new physicians in that market. So once they are on board and start to ramp up, I think we will see that that operating income come back. So its temporarily a nature, its – I mean it’s a couple of quarters, it takes a little while to recruit and get a new person in and get them ramped up to the level of the previous physician that retire. So but we do expected to come back.

And they have added some physicians in that market in the first quarter which we’re pleased to see. There is some expense work to do there. And we’re very happy with the – and everyone is excited about the Vanderbilt collaborative that we’ve signed affiliation agreement that will continue to add pricing opportunities on supply equipment and implant.

Great. Thank you. And one more question from me, just more of a housekeeping one, but first like what – on the tax side, I mean what impact do you expect on changes in the U.S. tax code and what kind of tax level that would you expect for 2018?

Yes. It’s not a huge change. Obviously the corporate tax rate coming down is positive for us from the facilities, but there are also in addition to that tax code limitations on the deductibility of intercompany loans and things of that nature kind of offset a lot of that savings. So in 2018, it wouldn’t be materially different from the previous year.

Okay, great. Thank you for that questions, thanks.

Your next question comes from the line of Neil Linsdell from Industrial Alliance. Go ahead please. Your line is open.

Hey, good morning, guys.

Good morning.

All right. First thing, I want to cover here so try to be quick, so between NueHealth and Vanderbilt, you are talking about purchasing synergies available through both groups.

Yes.

Is there any kind of overlap and is there any ability to benefit certain facilities or certain products from both of these relationships somehow. And so I’m trying to understand how they mix together. And if you quantified any kind of low hanging fruit dollar savings over say the next 12 months that you think you can accomplish.

Yes. So taking that step wise when we were – we initially investigated and evaluated the Vanderbilt opportunity we’re excited about that. It increased our savings opportunities. And we’re under the same GPO, so it was a matter of just benefiting from already existing contracts and its getting better pricing. With the NueHealth team, we did an in-depth study to see any of their – any differences or synergies between the two. It made no difference. But what it did do is create more of a seamless operating platform for NueHealth. So we elected to keep that consistent just for ease of continuing to integrate those centers. There is no difference in pricing between the two after we study that. So we think that the first level of that – first level or just basic supplies that we’re buying that we’re already doing and we think that they is probably in the neighborhood of easy $0.5 million adjusted that initial savings there. But on an ongoing basis, we’ll say in capital equipment purchases implants and their teams and clinical teams will be able to advice there and help our hospitals and clinical staffs to continue to drill down. So this will be at ongoing savings initiative that we think will pay off and continue to pay off in the next year.

So $0.05 million benefit over say the first year and then just on going after that.

That’s just the flip of the switch right out of the gate.

Oh right out of the gate.

Yes, yes. So we anticipate that will build that just on things that we’re buying right now today with absolutely no significant disruption to operations.

Okay. And then flip into the payout ratio, so I think you’ve talked before about guiding about 70% payout ratio for the entire year. Does that change with some of the – you mentioned growth initiatives, extra spending, impacting your cash available for distribution?

No, not really. As you’ve seen in previous years I mean obviously the first quarter, the rate there is a higher. And then if we get to the fourth quarter which is obviously the strongest quarter on the commercial side that number comes way down, so when you average it over the year. So we wouldn’t expect a material different, obviously we had extra cost this first quarter, especially on the M&A side of things, that are impacting that ratio. So we – it’s not because we’re spending more because of our growth, it’s really more one-time in nature.

Okay. And then just on the overall I mean cost savings, if I look at your operating expenses, seller supplies G&A they are all up 10% to 16%, your revenue throughout just under 10%. Now is that something that is more we’re building out for the benefit later on. Is that something that’s going to be addressed with specific cost saving initiatives? How does that come better in line and how do you get the revenues growing faster?

Yes. I think a couple things, first of all, we – part of our growth initiatives have been add, recruit doctors and add urgent care centers and those development costs are realizing when you first open them, you don’t have any patients or income to offset that. The same with recruiting physicians, as we’ve adding new physicians they come in with all the costs yet none of the benefit yet. So those things will take a while to continue to ramp up, like I said, we’ve invested in two urgent care centers and they are ramping up, but they were – was a bit of an investment. So that was a big piece of that.

Yes. And again, as you look at the operating expenses, I mean much of that increases, $5 million of it, because of the new ASCs, which is [indiscernible] obviously offset by the revenue that came in with those ASCs also soon. We continue – our markets are continuing, I mean, everyday, they’re drilling down on expenses, obviously implants and drugs and everything else are, what’s growing so much on the cost side of things and they are all over. So we look at that thing every day.

Okay, but it’s really more to investment now for the growth potential that you’re seeing.

Yes, yes. So Rob’s point, especially on, when you’re looking at the urgent care centre and hiring – bringing on new physicians, you get the calls upfront and then the revenue comes after.

Okay. And then on a high level on regulatory challenges or changes coming in, obviously we’ve talked about Obamacare and potential impacts. Can you just go through a high level of things that you’re seeing changed? How you reacting to them and I’m thinking CDL patients, knee surgeries, for example that we should be watching.

Yes. Our data is shown in our study into this – that in patient needs regarding to grow over the course of next 10 years and 2% to 3%, but the outpatient total knew opportunity is will grow 400% to 450%. So this is something that we see is more of an opportunity than especially given our efficient facilities in terms of operating and doing these procedures. So we haven’t seen that just the very edge of – very few of these procedures. Again, it’s a narrow patient that can do an outpatient total need to be very healthy. So we just seen very, very few of that, but over time, we’re watching this is more of an opportunity going forward. As far as healthcare reform, I think that’s something that’s we’re not looking to see any change on that, we’re not seeing any activity on any of repeal and for the most part that’s good for healthcare. It’s not significant piece of our business, but that’s always good when people have more insurance. And then again we study the [indiscernible] in terms of the physician ownership, whether that will be repeal and at this time we don’t – again, there’s not been any significant movement on any of the builds.

Okay. But and then to address some of the comments you’ve made there. All your initiatives that you’re doing with the ASCs, seem to put you in a better position with some of these changes that we’re coming down the line.

That’s absolutely right. I mean, more and more cases moved outpatient – shifting outpatient, this is – this regard our intended diversification strategy.

And just one last thing though, I’ll leave it. South Dakota, obviously, there’s always consumers were thoughts about what’s going on with the competitive environment there with new facilities. Can you just touch on that if you’ve seen any kind of reaction or talk from doctors as far as recruiting or doctors leaving?

No. We haven’t been any of that activity of course, we get these questions all the time and we just say that every market that we’re in is competitive. These – both these markets, these are not new competitors, it’s the existing competition that building a new facility. We still have extremely high quality and efficient hospital is partnered with the premier physicians in that area and we feel very good about our physician. We continue to execute on our growth strategies adding complementary services. So…

All right.

Your next question comes from the line of Neil Maruoka from Canaccord Genuity. Go ahead please, your line is open.

Hi, good morning.

Good morning.

Most of my questions have been asked, but maybe just focus on Unity and so hosting a last year. I think if we look back to the same quarter last year underscores, have you reliance on one physician. What do you need to do at that facility in order to establish a former growth trend there and reach consistent positive operating income?

We need to grow. We think we’ve talked about this hospital, in terms of its platform and it’s ability to do more into grow. It’s a very nice hospital, good quality, good outcome, very attractive. We have added several physicians there as well in the first quarter. We have a significant strategy and plan in this market both for growth and for expense management and we’re executing on that. We brought in a new financial executive and this team is very focused on operating to it’s existing volumes. So we see a good opportunity to grow this hospital.

So something that you expect that you’d be able to achieve over coming months or is this process that will pick several quarters to get consistent operating profit.

I think it’s not a realistic thing several quarters. As we continue – we’ll continue to add again services and doctors I think are over the next several months to several quarters this strategy is continue to unfold. It’s not an unrealistic expectation.

Okay, great. That’s all for me.

Great.

And with that, I’d like to turn the call back over to Mr. Rob Horrar for some closing remarks.

Thank you, operator. Thank you for participating on today’s call and for your continued interest in MFC. We look forward to reporting on our progress next quarter. Thank you.

This concludes today’s conference. You may now disconnect.